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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 41221
Experience:  Run my own successful business/contract law practice.
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How do founders of companies pay themselves? Hi, I have

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How do founders of companies pay themselves?


Hi, I have a situation in which two 100% owned startup companies may be merging together. My company would be the smaller of the two, and thus would correlate to the lower equity.

The co-owner and I are discussing how we pay ourselves fairly. Suppose he owns 75% and I own 25% of the result - How are salaries and pay normally done in this situation?

Both of us are frugal, long term thinkers, and the startups are already profitable, so we aren't short of cash, but we do want to do this fairly.

Thanks,
Jared

Thank you for your question. Please permit me to assist you with your concerns.

Salaries and ownership are different. If you both perform the same work, you both can draw the same wage, since a wage is not based on ownership but is based on work. There are typically two layers for compensation, one being wages and the second being profit. A 'wage' can be set based on conditions and set base don work. Then whatever remains after overhead is paid out (including wages) would be profit and that would be split in proportion of ownership. Consider having two tiers, as that would be fairer to both provided you both agree to be productive and active in the business.

Good luck.

Customer: replied 3 years ago.

Ok, that makes sense for salary. When it is time to withdraw more than the salary, would that be done by having both founders withdraw proportionally at the same time?

Or would one individual withdraw, but accordingly reduce their equity?

Thank you for your follow-up, Jared.

In terms of 'equity', that is proportionate in terms of ownership. It does not have to be one at the same time, but for accounting purposes if one wishes to obtain a check for a portion of profit, the other is entitled to the same check (but for his own amount).

If one withdraws as a special event, then the parties can agree that it would reduce their equity and potentially modify the proportionate share of ownership.

Good luck.

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